Microeconomics Chapter 13

many firms, firms sell identical products, and no barriers to entry to new firms entering the industry

many firms, firms sell different products, and no barriers to entry to new firms entering the industry

horizontal

zero long run profit

a zero long run profit but do not face a horizontal demand curve

a market structure in which barriers to entry are low and many firms compete by selling similar, but not identical, products

revenue increases because of the additional sale

in order to sell the additional product, it must reduce the price on all product it will sell. The loss in revenue on the products it would have sold anyway is the

be below the demand curve

equal to the height of the demand curve

the vertical difference between demand and marginal revenue curves

MC = MR

each additional unit of output incurs some marginal cost

the line where the demand/price, ATC, and MR have the same quantity. (P-ATC) x Q

falls until, in the long run, no profit can be made: P = ATC

Notice that there is now no quantity for which demand (price) is above ATC; this firm must make a (short-run, economic) loss, no matter what quantity it chooses

-In the long run, the firm must break even -Notice that the ATC curve is just tangent to the demand curve. The best the firm can do is to produce that quantity -There is no quantity at which the firm can make a profit; the ATC curve is never below the demand curve

"the direction of trend"; demand will continue to fall to the zero (economic) profit level, unless the firm is able to do something about it

-Innovate so that their costs are lower than other firms, -Convince their customers that their product/experience is better than that of other firms, either by actually making it better in some unique way, or making customers perceive that it is better, perhaps through advertising

the long-run outcome of zero economic profit will catch up to it

producing items at the lowest possible cost

producing all goods up to the point where the marginal benefit to consumers is just equal to the marginal cost to firms

productive nor allocative efficiency

MC=MR

MC≠MB: not allocatively efficient

so not productively efficient

consumers might benefit from the product differentiation

monopolistic competition is not necessarily bad for consumers

there are economic profits to be made in the short run if you can "own a market"

-Having brand, scale, or cost advantages -Taking advantage of network effects -Having proprietary technology

all the activities necessary for a firm to sell a product to a consumer

the actions of a firm intended to maintain the differentiation of a product over time, otherwise they risk heading toward the long-run outcome of zero economic profit

-a critical element of marketing for monopolistically competitive firms -firms can increase demand for their products. -using it to differentiate their products: effectively making the demand curve more inelastic

to charge a higher price and earn more short-run profit

maintain product differentiation, and delay the ability of other firms to compete away your profits

-their name is uniquely associated to that product, and not to generic products -other firms don't illegally use their brand name, and -franchisees and others legally allowed to use their brand name maintain the level of quality and service you expect.

value

first-mover advantage

does not have a long-lived advantage over later entrants.

the lowest possible average cost.

the demand and average total cost curves to determine price, cost, and profit or loss

be delayed indefinitely by innovative firms

-charge a price greater than marginal cost -do not produce at minimum average total cost

their names becoming so widely used for a type of product that they no longer are associated with a specific company (ex. Aspirin)

some of McDonald's customers, but not all of them, will still demand McDonald's cheeseburgers because they may prefer McDonald's cheeseburgers to cheeseburgers at other fast-food restaurants

may continue to earn profit by reducing costs

chance events, factors affecting a firm's entire market, a firm's average cost of production relative to that of competing firms, differentiation of a firm's product from other products

-the demand curve will shift to the left and become more elastic because the firms are currently making profit -or the demand curve will shift to the right and become more inelastic

the firm's ability to produce its product at a lower average cost than competitors

decrease profits by increasing the cost of production